The Profile Dossier: Tobi Lütke, the Founder Who Believes In Arming the Rebels
“Entrepreneurship is precious and needs to be celebrated.”
You may be surprised to learn that e-commerce platform Shopify would never exist if founder Tobi Lütke didn't have an obsession with snowboarding.
In 2004, he was working as a programmer, but he wanted to make some extra cash. He decided to team up with a friend and start his own business: an online snowboard store called Snowdevil. They thought the process would be simple: Create an online store and start selling snowboards.
But it was way harder than they imagined.
“I tried to find the right software to use for this business, and I was stunned that I couldn't find anything," Lutke says. "It's not that there wasn't e-commerce software, but it was just all basically user-hostile database editors, at best. It was so clear that no one who's ever run a retail business had had any part in building these pieces of software."
As a programmer, the natural solution to this problem was to build his own software from scratch. He used a programming language called Ruby on Rails and successfully launched his store. He was working out of a coffee shop in Canada called Bridgehead when he received an email with his first order.
"I came in, I got my coffee, I sat down, and I was scanning through my emails," he says. "While I was doing that, another email came in. It said, ‘new order.’ It was an insane moment."
Lütke says this was one of the most important moments in his life because it made him realize something: He suddenly went from programmer to entrepreneur.
"I remember it, I remember exactly where I was sitting, what I was eating that day," he says. "It was something that I just fell in love with, and I wanted to share that."
Snowdevil took off, but then something unexpected happened: People were less interested in buying snowboarding gear and more interested in the backend infrastructure for their own online stores.
Lütke listened to the feedback — he decided to pivot Snowdevil into the company that would ultimately become Shopify. He became obsessed with the idea that his company would empower small business owners to have the same experience he had in that coffee shop that day when he made his first sale.
"There’s a huge global demand for people reaching for their own independence," he says.
Today, Shopify powers more than a million online shops, and Lütke is obsessed with using systems to automate repetitive tasks and incrementally improve the customer experience.
"I’m always trying to think of ways to make something more efficient," he says. "If I have to do something once, that’s fine. If I have to do it twice, I’m kind of annoyed. And if I have to do it three times, I’m going to try to automate it."
Here's what we can learn from Lütke about efficiency, optimization, and leadership.
On becoming an original thinker: Lütke has a fascinating mind. He's developed mental models around creativity, product creation, and learning. "I find that going wide and learning the best lessons from the people who have dedicated their entire lives to a certain pursuit gets you really, really close to mastery,” he says. (I happen to believe the same!) This is a fascinating deep dive into Lütke's approach to leadership.
On taking on Jeff Bezos: When businesses had to close en masse due to a global pandemic, Shopify armed them with the tools to become instantaneous online stores. While Amazon’s reputation as a vampiric partner to merchants was reinforced in 2020, Shopify suddenly emerged as their biggest ally. Will Lütke be able to take on Amazon — and win?
On his hiring strategy: When Lütke hires an employee on his team, he doesn't ask traditional interview questions. Instead, he prefers to hear the candidate's life story in their own words to better understand how they think. He listens for the moments where they had to make important decisions, and he goes deep on those by asking more probing questions. "I find the strongest predictor of people who do well at Shopify is whether they see opportunity as something to compete for, or do they see opportunity as essentially everywhere and unlimited," he says.
On staying disciplined in business: Lütke has built Shopify into a behemoth powering so much of the internet’s digital commerce. In this conversation, Lutke discusses business focus, why video games can help you learn the power of attention, what design means for products and organizations, and how he uses mental models to stay disciplined. (Check out this Twitter thread on the mental models Lutke uses.)
On scaling Shopify into a global business: Putting small things together to act big is at the heart of platform thinking. In this episode, Lütke explains that the secret to gaining massive scale is to be a platform. It goes like this: Build a virtuous cycle where everyone wins, and you’ll emerge the biggest winner of all. Here's how Lütke built Shopify and why he decided to open it up to the world.
On building trust: Lütke believes that trust is actually a much more complicated concept than people think. It's not black-and-white, he says, it's more of a gradient. For instance, he says, the so-called “trust battery” is charged at 50% when you are first hired with a fellow co-worker. And then every time you work with that person, the battery that exists between the both of you gains or loses charge based on whether each of you delivers on your promises. This one is filled with interesting thought experiments you can implement in your everyday life.
On transforming into a CEO: Lütke could have been pigeonholed as an introverted computer programmer, not a public-facing CEO. But he was eager to learn, and that became his superpower. In this podcast, Lütke discusses his learning style, how he's cultivated a culture of curiosity, and why he's obsessed with the book The Courage to Be Disliked.
On how he solves problems: Lütke says the biggest advantage he had as an entrepreneur is starting out as a programmer. "You think in systems," he says. "By default, most people think about cause and effect, but the world doesn't work like that. The world actually works in systems — it is loopy, not linear." This is a fascinating interview that gives us a peek into Lütke's systems-based mind.
On the power of starting small: During the pandemic, Lutke noticed that shops centered around decorative tapestries and wall art were doing very well. Why? Because in an era of endless Zoom calls, people wanted better backgrounds when they appeared on video. So if you're about start a company or a product, Lutke recommends asking yourself: "How does this product I'm creating fit into the story of the times?"
On lessons from the pandemic: Lütke isn't afraid to admit when he's wrong. Before the pandemic, he believed that there is nothing more powerful for productivity than physical proximity. But then he changed his mind. "If you can actually get a small team together where everyone has the right kind of setup and the software is there to support it, then you can put some really high-fidelity team together that works really, really well," he says. Here's how he's constantly updating his beliefs.
Use a color-coding system to gain control of your schedule: Lütke uses a color-coding technique to manage his calendar. He labels anything product-related as red, investor and board of director-related business as teal, and so on. The thing he's looking for is a balanced week — "a week where, ideally, I manage to devote about 30% of the time—at least—to the product and then as much as possible to things like recruiting, bigger picture projects, and one-on-ones." Color-coding your calendar is a great way to do an audit and see exactly where you're spending most of your time.
Improve decision-making by poking holes: How do you know if you're about to make the right decision? Deconstruct it, poke holes in it, and look at the elements that went into making it. "When you're discussing an idea or a decision, I want to know what has been considered," Lütke says. "I find myself more interested in the inputs of an idea than the actual decision." Here's how he does it: Look at the possible outcome of a decision, and ask yourself: What assumptions have I made? What inputs did I use to come to this conclusion? Are my fundamentals shaky? "The decision being discussed could be the perfect decision according to the various assumptions that everyone came into the room with," Lütke says. "But if those assumptions are faulty, the seemingly perfect decision is faulty too." Whenever he makes a decision, he keeps a small log file with one paragraph explaining what information he used to make that decision and then reviews it every six months.
Gain knowledge quickly by using Lütke's 'fly on the wall' technique: Before podcasts were big, it wasn't easy to listen in on a conversation between two experts. But Lutke found a way. He enjoyed situations in which he played the role of "a fly on the wall." Here's how he did it: Let's say he wanted to learn about some esoteric 3D rendering algorithm. He would join a chat room where people talked about this topic, but he didn't understand anything because it would be so specific and technical. "But then, I chip away at it, and I would come into the knowledge," he says. Because he had no background in business, he replicated this exact process when he was meeting with investors. They would ask him about things like "attrition rates" "conversion rates" and "funnels," and Lutke would write down the terms, look up their definitions, and find the answers. In other words, he starts with the details and then pieces together the puzzle of the foundation. (This is the opposite of Elon Musk's approach.)
Re-frame failure to promote experimentation: At Shopify, the word "failure" does not exist. That's because Lutke believes that "almost every good decision starts as a bad one first. It was important to him that he build a culture unafraid of experimentation at his company. So failure was re-framed as "the successful discovery of something that did not work." But he discovered that this approach only works if everyone is on the same page about giving and receiving direct feedback about their work. "Feedback is a gift because it is. It clearly is," he says. "It’s not meant to hurt. It’s meant to move things forward, to demystify something for you."
Build systems that help in times of uncertainty: Lütke has a great piece of advice: "Always understand the system of how you got to where you are." Entrepreneurship, he says, is about the ability to step back and look at the whole picture. "It’s a beautiful thing as an early company – if you have 10 people, and one product, and one potential market, you can actually draw the entire systems diagram on one blackboard," he says. "Once you have that modeled out, try to reason about the whole situation and pick out how you got to the point. That’s what the trick is." Systems act like a map that can you guide you out of moments of adversity.
Remember that trust starts at 50%: Lütke says it's not useful to think that trust is mostly binary — you either trust someone or you don't. It's much more complex than that, and he uses the metaphor of a "trust battery" to explain it. When you enter into a personal or professional relationship with someone, your trust battery starts at roughly 50% and every interaction you have with the person either charges or discharges the battery a little bit. "Just like with your phone, if the battery is low, you think all the time about the battery," he says. "It’s the same with people. Those who are low on trust – you think of all the time. The people who are high on trust, you don’t worry about as much." Aim to be a person whose trust battery stays consistently charged at over 80%.
QUOTES TO REMEMBER.
“Amazon is trying to build an empire, and Shopify is trying to arm the rebels.”
"I believe the secret to massive scale is compressed in three words: Be a platform.”
“I have an unbroken track record of underestimating the potential of my own company, which I hope will continue.”
"Just give me the raw feedback without all the shit sandwich around it."
“Entrepreneurship is precious and needs to be celebrated.”
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